May 2, 2016 / 11:02 PM / in 2 years

UPDATE 1-Brazil's Cielo beats estimates as cost controls offset weak volumes

(Recasts to add results details throughout)

SAO PAULO, May 2 (Reuters) - Cielo SA beat first-quarter profit estimates on Monday, reflecting efforts to curb costs and boost receivables prepayment income even as the harshest recession in decades dragged down volumes for Brazil’s No. 1 card payment processor.

Net income at Barueri, Brazil-based Cielo totaled 1.038 billion reais ($297 million) last quarter, up 15.5 percent from the previous three months. The figure was way above the average consensus estimate of 915 million reais compiled by Thomson Reuters.

A decline in card usage during the quarter was offset by rising merchant discount fees and the rising cost of borrowing at which Cielo pegs the purchase of receivables from clients. Lower maintenance and marketing expenses helped boost earnings before interest, tax, depreciation and amortization - a gauge of profit known as EBITDA - to a quarterly record.

Volume growth for credit, debit and agriculture-related card transactions slowed last quarter. Costs slumped 6.8 percent from the prior three months, helping Chief Executive Officer Rômulo Dias in his bid to keep growth of the indicator between 4 percent and 6 percent this year.

The numbers underscore the threat that the longest recession in decades poses to financial companies which, like Cielo, process transactions for consumers and companies alike. Still, Dias has put profitability at the forefront in recent quarters as a way to defend the company from the impact of Brazil’s downturn and mounting competition.

Management will discuss first-quarter results with investors on a conference call early on Tuesday.

Gross income from prepayment of receivables came in 18 percent above estimates, totaling 653.8 million reais last quarter. To reduce Cielo’s increasing dependence on receivables discounting, which remained at a near record 63 percent of profit last quarter, Dias is focusing on growth at processing joint venture Cateno and grabbing market share form rivals.

Net revenue rose 4.8 percent to 3.047 billion reais, below average consensus at 3.267 billion reais. EBITDA hit 1.407 billion reais, below average consensus at 1.667 billion reais.

$1 = 3.4978 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Bernard Orr and Andrew Hay

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